On Tuesday, the White House announced that it would delay for another year one provision of the 2010 health care reform act. Larger employers will now have until 2015 before they will have to provide insurance or face penalties. The administration’s explanation is that it is listening to businesses’ concerns about getting their coverage ready in time, and trying to be flexible. But what people are really concerned about is whether this will make a difference in health care coverage and the progress of reform.
The short answer is no.
The employer mandate was included in the Affordable Care Act — which I helped design as an adviser to the Obama administration — in order to ensure the continuation of employer-sponsored insurance after the creation of state-sponsored health care exchanges. We didn’t want every employer to simply drop its coverage and send all its workers to the exchanges.
But complying is proving to be more difficult than expected for employers. The act requires businesses with more than 50 employees to provide coverage to their full-time workers or face a penalty of $2,000 per employee. A full-time worker is defined as someone who is paid for 30 or more hours of service a week or 130 hours a month. It sounds simple, but determining who should be counted turned out to be a nightmare.
Hours of service include paid vacation and sick time, as well as things like jury duty. And how do seasonal workers fit in, or people who work just one semester at an academic institution? Employers rightly complained about the complications, and the administration was right to listen.
Delaying enforcement of the mandate won’t hurt the progress of health care reform because, the fact is, the requirement affects very few employers.
There are around six million employers in the United States. The vast majority — 96 percent — are small, employing fewer than 50 workers. Many don’t offer health insurance. For instance, among employers with fewer than 10 workers, half don’t offer insurance. But the employer mandate does not affect them, and they don’t pay a penalty.
Only about 200,000 employers have more than 50 workers. And the vast majority of them — 94 percent or more, according to the Kaiser Family Foundation and Health Research and Educational Trust — already offer health insurance. Thus, fewer than an estimated 12,000 employers fail to offer health insurance and would be subject to the penalty. That means we’re talking about only maybe 1 or 1.5 million workers.
Certainly, for these workers, having health insurance would be a great benefit. And covering more Americans was a central rationale for the Affordable Care Act.
But not having their employers provide insurance doesn’t mean they have to wait much longer for coverage. In October, thanks to the Affordable Care Act, they will be able to buy insurance on the exchanges. They won’t have to worry about having a pre-existing condition, and they will receive an income-based subsidy to help defray the costs.
It is also highly unlikely that the administration’s announcement will encourage any of the other 94 percent of large employers to drop their health insurance. They provide it now with no mandate. No law requires General Electric or Verizon to provide its workers health insurance today. They do it because it makes business sense in terms of attracting and retaining good workers.
Perhaps, after the exchanges go into effect and prove themselves reliable, some employers will be tempted to drop their coverage. But by the time any of them can make the change, it will be 2015, and by then the penalty will be in place.
The employer mandate is overly complicated. Representatives in the House had what was probably a better idea: to make employers devote a certain percentage of their payroll to health insurance, instead of doing it by the number of full-time workers. That would have been a far simpler determination. It was one of those points that was supposed to be resolved in conference committee. But alas, the election of Scott Brown, the Massachusetts Republican, lost the Democrats their supermajority in the Senate, and we had to move forward with the version of the act that had already passed. The good ideas from the House never made it in.
But whatever the merits or demerits of the employer mandate, and despite the headlines this week, postponing the mandate’s enforcement by one year isn’t particularly noteworthy.